Ahead of Valentine’s Day, short interest in some of the companies that operate online dating sites is on the rise, data from securities-financing tracker Data Explorers show.

The firm tracked activity in three stocks: IAC/InterActive Corp., which operates match.com and chemistry.com, FriendFinder Networks, which runs friendfinder.com and went public last year, and Spark Networks, which operates jdate.com.

Short interest in IAC has been “growing steadily” from 6% of total shares a year ago to 14% at current levels, Data Explores says. The rise in shorting activity has coincided with the stock surging more than 40% over the last year.

It’s worth pointing out that while IAC’s dating service is a big growth driver, it ranks second in revenue to the company’s search division. “It is therefore hard to identify short seller’s intent in IAC,” Data Explorers says.

Meanwhile, short interest in FriendFinder has been rising since the company’s IPO in 2011 and currently sits at about 2.3% of total shares. “While this might seem low in absolute terms, it represents nearly all of the available supply, meaning it would be hard and expensive to short more of this stock.” The stock priced at $10 last May, but hasn’t sniffed that level since then. The small-cap stock recently rose 0.9% to $2.31.

As for the Jdate operator Spark Networks, there is low short interest in the stock as only 1.2% of shares are currently on loan. “However that number has jumped in recent week as the share price rallied in the last quarter,” Data Explorers says.

To be sure, short interest is reported as a percentage of shares outstanding, meaning these aren’t necessarily the most-shorted stocks in the market. Here’s how MarketBeater Matt Phillips has explained it in the past:

Data Explorers tracks how much of a company’s stock are out on loan, and uses the loan numbers as a proxy for short interest. It’s important to note, that not all shorting represents bearish bets against the company. Sometimes short interest can be driven by hedge funds and other investors when a company issues convertible bonds. It’s not unusual for investors in convertible bonds – a hybrid bond that can be converted into stock if shares hit a set price – to short the company’s stock as a way to hedge against the failure of shares to reach the conversion price.

Still, shorts may be looking to pounce on any weakness in this sector, especially as the effectiveness of online dating continues to be a big question mark. Here’s what The Economist has written on the subject:

Internet dating sites promise two things that neither traditional matchmakers nor chance encounters at bars, bus-stops and bar mitzvahs offer. One is a vastly greater choice of potential partners. The other is a scientifically proven way of matching suitable people together, enhancing the chance of “happily ever after”.

The greater choice is unarguable. But does it lead to better outcomes? And do the “scientifically tested algorithms” actually work, and deliver the goods in ways that traditional courtship (or, at least, flirtation) cannot manage? These are the questions asked by a team of psychologists led by Eli Finkel of Northwestern University, in Illinois, in a paper released—probably not coincidentally—a few days before St Valentine’s day. This paper, published in Psychological Science in the Public Interest, reviews studies carried out by many groups of psychologists since the earliest internet dating site, Match.com, opened for business in 1995. In it, Dr Finkel and his colleagues cast a sceptical eye over the whole multi-billion-dollar online dating industry, and they are deeply unconvinced.

Alex Brog of Data Explorers offers his two cents on why short sellers may be showing interest in this part of the market.

“The choices offered by online dating can be overwhelming and in the end outcomes might not live up to expectations. It may come as no surprise that this hugely competitive industry has been targeted by short sellers,” he says. “Matters could be further exasperated should companies like Facebook or Google offer matchmaking services free to their existing communities.”

Comments (2 of 2)

If SE was smart (and had a heart) they'd make this thing for every cirraer. Take over Android, get buzz in the handheld arena again and take on Apple in a big way don't give this to AT&T and call it a day. I know SE hates CDMA but make it for Verizon and AT&T at the least, and Verizon, Sprint, AT&T and T-Mobile if you're serious about this thing making an impact. It's gorgeous and this is very exciting. The choice of touchpads instead of analog sticks is interesting. It could work, but odd since we know they are capable of thin nubs for sliders (Go).

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